Facts About Utah’s Tax Code and a Changing Economy

A modern economy has left Utah’s tax code behind and, with it, the flexibility to make strategic decisions about Utah’s future. The Salt Lake Chamber believes this is the most critical issue facing the Legislature and must be addressed this session. After years of effort to understand the various policy options to modernizing our tax code, it’s time to act.

The Economy Has Changed

There is little doubt this isn’t your grandfather’s economy. The digitization of goods and changing purchasing patterns have made Utah’s tax code a thing of the past. It’s time to look at new approaches at broadening the base and lowering the rate with modern tax code for a modern economy.

Goods to Services: According to the U.S. Bureau of Economic Analysis, since 1955, the percentage of U.S. consumption has shifted from 43% on services and 57% on goods, to now 68% on services and only 32% of goods. This has immense consequences for the state’s ability to have a broad base and low rates, and the sufficient revenue to make strategic investments.

Impacts on Collections: Based on analysis from the Kem C. Gardner Policy Institute, from 2009 to 2016, the state’s economy has grown at 29.1%, with the state’s income tax collections growing at nearly the equal rate (28.8%). However, our state’s sales tax revenues have only grown by 13.8%, showing a significant disparity between how fast the economy is growing and what the sales tax is able to capture.

Our Tax Base is Shrinking

Utah’s income and sales tax base has eroded significantly in recent decades. This is due to both changes in the economy and legislative actions. Today, Utah offers more than 170 exceptions to the tax code and inducements to incentivize behavior, 90+ of which — we don’t really know of the true cost. It’s time to broaden the base and lower the rates so legislative actions and a changing economy do not unfairly burden the rest of taxpayers.

Shrinking Base: Over the past several decades, Utah’s sales tax has been eroded due to changing purchasing patterns, the digitization of goods, legislated exemptions and remote sales. Since 1980, Utah’s sales tax base has shrunk relative to the economy by nearly 30%.

Keeping Up With Growth is Expensive

As a high-growth state, Utah must provide Utah’s workforce with the skills of the 21st century, and constantly maintain and invest in infrastructure. Keeping up with your kids and grandkids requires real investment to stay in front of the cost curve. Relying on the same old tax code and fiscal constraints to invest in our future won’t cut it.

Robust Growth: Utah has significant needs for future growth. According to the Kem C. Gardner Policy Institute, our current population of just over 3 million is projected to double roughly to 6 million by 2065. This includes an increase of more than 300,000 children ages 5 to 17. Today that population numbers 675,000.

Infrastructure Needs: In 2015, the American Society of Civil Engineers estimated that Utah needed $60 billion worth of infrastructure improvements and maintenance during the next 20 years to meet the needs of the state’s rapid growth. This doesn’t include the infrastructure to support our education system, like new schools and higher-education buildings, or strategic economic development opportunities like Point of the Mountain, the Inland Port or North West Quadrant.

Enhancing Education Funding

The number one challenge companies are facing due to growth is creating a quality workforce. Modernizing our tax code presents an opportunity to enhance Utah’s overall funding effort in education to ensure we are investing in a future where companies have the talent needed to compete.

Declining Funding Effort: While we have made significant investments in recent years, Utah’s investment in education, relative to our ability to pay, has fallen from 7th best in the country in 1995 to 31st today. Additionally, much of our new funding has only kept up with the nation’s fastest population growth, mainly funding enrollment and student growth. Few dollars have found their way to specific strategies to improve student achievement.

Maintaining Utah’s Competitiveness

Utah businesses need a more competitive tax code in today’s marketplace. Other states are catching up to our state’s economic vibrancy. Utah trails many of its competitors in creating the economic environment necessary to attract headquarters and advanced manufacturing. That means we need to make the necessary changes to keep Utah’s tax climate among the best in the nation.

Staying Competitive: According to the Tax Foundation, Utah is ranked #8 in the 2018 state business tax climate, however when looking at strategic economic development opportunities such as Corporate Headquarters (#26) or Capital-Intensive Manufacturing (#16) our rankings significantly drop.